Rabobank: Limited possibility for sugar prices to rebound

With another year of global sugar surplus, world and U.S. sugar prices show little potential of moving off their recent lows for at least the next couple of months.

Published on January 23, 2014 10:40AM

Global surplus of sugar projected at 2.5 million tons

By Carol Ryan Dumas

Capital Press

An oversupply of sugar on the world market leaves little upside potential to lift sugar prices out of the doldrums, according to Rabobank’s quarterly sugar report.

Supply-and-demand fundamentals point to a fourth consecutive year of a global sugar surplus, projected at 2.5 million tons for the 2013/2014 international crop year and a further build-up of world stocks, the report stated.

“There are not many factors that could affect prices on this market,” Pablo Sherwell, Rabobank’s top sugar economist, based in Mexico, said in a telephone interview on Jan. 16. Rabobank is a leading international agricultural lender.

U.S. raw sugar prices are hovering around 16 cents a pound, after tumbling steadily from a high of about 40 cents a pound in the third quarter of 2011.

Prices are likely to remain low for at least the next couple of months, Sherwell said.

But he thinks prices have reached their lowest level and could increase moving into the 2014/15 crop year, he said.

With world production stagnant and consumption increasing, U.S. sugar prices began an upward trend with the 2008/09 marketing year, which runs October through September. Two subsequent years of supply deficits kept the price moving upward. World sugar production then responded, pushing prices dramatically downward over the last two cycles, he said.

The yearly average price for U.S. sugar in calendar year 2011 was 38.12 cents a pound, dropping to 28.90 cents in 2012 and 20.46 cents in 2013, according to USDA Economic Research Service, using information from Intercontinental Exchange.

Sugar on the world market traded above 20 cents only briefly in mid-October of 2013 in reaction to a fire at two sugar warehouses in Brazil and doubts about the Brazilian harvest, Rabobank reported.

The industry and analysts pretty much know what’s going on in the world for the 2013/14 cycle; the big question is what’s going to happen in 2014/15, he said.

The current situation includes significant pressure in India and Mexico to export large volumes of surplus production for the 2013/14 marketing year, which ends in September. In addition, China is expected to require less sugar, possibly much less, from the world market this year, Rabobank reported.

Speculation that sugar prices could receive some support from millers in Brazil who also produce a large amount of ethanol, used domestically, is unlikely to materialize, the report stated.

Domestic ethanol prices in Brazil are higher than refined sugar prices, but Brazil’s currency is losing value, and millers there would prefer to export sugar and capitalize on the exchange rates, Sherwell said.

In addition, a potential appreciation of the U.S. dollar against most currencies is likely to put pressure on prices, Rabobank reported.

As for 2014/15, the question is whether there will be another global surplus, keeping stocks high and continuing downward pressure on prices, he said.

The U.S. might see a reduction in sugar production, with a possible decrease in beet production, and a reduction in carryover stocks, but the wild card for U.S. prices is sugar imports from Mexico, he said.

Sherwell expects those imports to be in line with the last cycle at 1.7 million tons. But if those imports decrease, it could increase U.S. prices, he said.